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Wealth Management & Wealth Preservation

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SME’s and Financial Management


Michael Steinson – Altorian Chartered Accountants

Recent events may mean that we are no longer a nation of shopkeepers but the UK still has 4.5 million small and medium-sized enterprises of which approximately 3 million are family businesses.

SME’s overall account for 99% of all types of business and employ an estimated 14 million people.  For the owners of many of these businesses, the ability to generate income and value of the business will be the most important financial asset that they have, other than their residential property.

The management of the business and, in particular, having sound financial management systems in place, is the best way for your business to grow, remain profitable and solvent. This will enable the business value to be maximised upon the eventual disposal of the enterprise.

What then are some of the main factors that businesses need to consider when putting good financial management practices in place?

Financial Planning

Whether it’s a new or established business, a current comprehensive business plan is essential.  There are many things that need to be considered:

  •  What are the product(s) and the market-place that you will be selling into? How unique is your product or service? Are there competitors?
  • How is the service going to be delivered or product produced and how many staff are necessary to meet the performance levels required?
  • Budgets and forecasting are an essential part of the planning process and will identify whether there is adequate funding at the right time to meet the demands of the business and if not how are the funds to be obtained?
  • What is the break-even point of the enterprise – which costs are fixed and how certain are the gross profit margins?
  • How realistic are the major assumptions?  What effect would variations make to the overall picture?

Financial Control

Accurate and timely reporting of financial management information is a pre-requisite and every business should identify a small number of Key Performance Indicators – both financial and operational – which will enable them to monitor and report easily on the performance and progress of the business

Regular monthly management accounts will provide most of the financial indicators supplemented by weekly and, in some cases, daily sales/operational data. Cash is still king and carefully managing the debtors is a pre-requisite not just in a recession. , Are the KPI’s in line with projections and industry norms and if not what are the reasons for the differences – one off or is a worrying trend developing? Make full use of this information to regularly review current performance, generate action plans to improve efficiency and to help forecast the future. performance.

Tax and regulatory compliance – make this as easy and simple as possible: don’t be afraid to seek advice.

Good financial controls and systems will therefore allow the owner/manager to concentrate on running and developing the business. Where the SME is unable to afford/need full time senior in-house accounting resources this can now be provided on an outsourced basis by accountancy practices.

Exit planning

For most business owners your business represents a lifetime of hard work. Whether the ultimate sale involves family succession, a trade sale or a management buy-out, careful planning – 5 years in advance is not uncommon – is necessary, to ensure that the values are maximised at the appropriate time.

It is essential that comprehensive and co-ordinated professional advice is sought to minimise the tax (entrepreneurs relief gives a CGT rate of 10% for eligible gains up to £10m), legal and financial planning issues attaching to the disposal of the business.

The benefits of a structured and properly controlled system of financial management should also enhance the value of the business during this process.

 

Mike Steinson is a Chartered Accountant with Althorian.

 

W: www.altorian.co.uk

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